Europe shows its influence over mortgage ratesby Tim Manni
Below is an excerpt from of our latest Market Trends newsletter, a weekly examination of the economic conditions that influenced mortgage rates. Sign up to receive the Market Trends in your email Friday evening.
American mortgage borrowers probably don’t realize it, but the Federal Reserve isn’t the only force moving mortgage rates. Trouble overseas in the Eurozone has kept plenty of cash flowing into U.S.-backed investments (especially Treasuries) over the past year or two, helping to keep both interest and mortgage rates lower than they would otherwise be.
Although there has been no marked improvement in the economies of our overseas trading partners (nor our own), there was a signal last week that the financial crises in Europe are being managed, if not showing signs of outright improvement.
This has set the stage for a rise in mortgage rates, which have already nudged higher.
Mortgage rates rising once again
HSH.com’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator (FRMI)–found that the overall average rate for 30-year fixed-rate mortgages (conforming, non-conforming and jumbo) climbed by six basis points (0.06 percent) to 3.73 percent, returning to highs of two weeks ago.
The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbo) increased by five basis points, cresting over the three percent mark for the first time since early November and landing at 3.02 percent for the week ending Jan. 25.
FHA-backed 30-year fixed-rate mortgages rose by four hundredths of a percentage point (.04 percent), moving up to 3.36 percent, as inexpensive mortgage money remains readily available to credit- or equity-impaired borrowers. Also, the overall average rate for 5/1 Hybrid ARMs took back the two basis points it fell the previous survey week, ticking back to 2.71 percent.
Inventories strain home sales
Sales of existing homes eased by 1 percent in December, and November sales were also trimmed by 1 percent. The 4.94 million (annualized) rate was still the second best reading of the year, but may suggest a leveling off of sales, at least for the moment. The report noted that a lack of inventory was holding back sales growth and also serving to firm up prices, which finished the year with an 11.5 percent gain compared to 2011.
Sales of newly-built homes point to much the same set of conditions. There was a 7.3 percent month-over-month drop in sales reported in December. Still, 2012 sales were some 20 percent higher than 2011, and prices are about 15 percent higher now than then, too. The new-home market is a smaller but perhaps more economically important portion of the housing market, given all the moving parts which make up the construction and financing of a house, and a leveling of this market may serve to flatten overall economic growth somewhat.
Expect higher rates this week
There remain plenty of challenges to be addressed, both here and abroad, and no reason to think there are any immediate fixes available.
Mortgage rates will bump upward this week. If market conditions at the end of last week are any indication, we might see another 5 to 8 basis point jump in the overall average for the 30-year fixed-rate mortgage.